SM Energy (SM -3.37%), an independent oil and natural gas producer with key assets in the Midland, South Texas, and Uinta basins, released its second quarter 2025 earnings on July 31, 2025. The release highlighted strong operational performance, with the company producing record volumes and surpassing market expectations on earnings (Non-GAAP) and revenue (GAAP). Adjusted earnings per share came in at $1.50, beating the analyst consensus of $1.25 (Non-GAAP), while revenue reached $785.1 million, just above the $781.6 million analyst estimate. The quarter showed substantial growth in production and cash flow, as net production reached 19.0 million barrels of oil equivalent and net cash provided by operating activities totaled $501.9 million, reflecting the successful integration of Uinta Basin assets, but also revealed rising cost pressures and a higher capital spending outlook.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $1.50 | $1.25 | $1.85 | (18.9%) |
| EPS (GAAP) | $1.76 | $1.82 | (3.3%) | |
| Revenue (GAAP) | $785.1 million | $781.6 million | $634.6 million | 23.8% |
| Net Cash Provided by Operating Activities | $571.1 million | $476.4 million | 19.9% | |
| Adjusted EBITDAX | $569.6 million | $485.9 million | 17.2% | |
| Adjusted Free Cash Flow | $113.9 million | $98.4 million | 15.7% |
Analyst estimates provided by FactSet. Management expectations based on guidance as provided in the Q1 2025 earnings report.
Business Overview and Strategic Focus
SM Energy is a U.S.-focused exploration and production company specializing in oil and natural gas. Its main operations span the Midland Basin, South Texas, and, following a significant acquisition, the Uinta Basin in Utah. The company's growth depends on high-quality assets that deliver strong production and generate reliable cash flow.
Its recent strategy centers on integrating and optimizing the newly acquired Uinta Basin assets, boosting production efficiency, and strengthening the balance sheet. The company’s key success factors include operational execution, a resilient asset portfolio, strong financial management, and effective risk controls such as hedging and cost management.
Quarter Highlights: Record Production and Financial Progress
One of the quarter’s standout features was record production, with net output reaching 19.0 million barrels of oil equivalent, or 209.1 thousand barrels per day. Net production was 5% above the mid-point of guidance and marked a 32% increase from the year-earlier period. Oil comprised 55% of total output.
The Uinta Basin acquisition has materially enhanced SM Energy’s scale. The Uinta contributed 4.37 million barrels of oil equivalent, averaging 48.0 thousand barrels of oil equivalent per day with a high oil mix of 87%. The company's CEO called out the Uinta’s “standout quarter” and impact on overall results, highlighting the asset’s role in driving performance.
Financially, the quarter delivered higher revenue and improved cash flow. Adjusted EBITDAX, a metric used in the industry to indicate earnings before interest, taxes, depreciation, depletion, amortization, and exploration expenses, rose by 17% year over year. Net debt finished at $2.63 billion as of June 30, 2025, with no outstanding balance on the credit facility, and cash on hand was $101.9 million. Management reiterated a goal of reducing net debt to adjusted EBITDAX to 1.0x by the end of the year, aiming to prioritize further deleveraging before buybacks.
Costs ticked upward, with lease operating expense per barrel increasing 15% quarter over quarter and transportation costs per barrel of oil equivalent more than doubled year over year, increasing from $1.94 in the prior-year period to $4.13. The company attributed some of this to greater Uinta Basin activity and structural differences in moving oil from that region, particularly when using rail transport. General and administrative expenses stayed steady, while the company raised capital expenditure guidance by approximately $75 million, citing non-operated project spending. Production taxes and depreciation, depletion, and amortization also trended higher, reflecting elevated activity and changes in the production base.
Product Portfolio and Market Factors
SM Energy’s product mix includes crude oil, natural gas, and natural gas liquids (NGLs). Realized oil prices before hedges averaged $62.04 per barrel, while gas prices stood at $2.15 per thousand cubic feet and NGLs realized price was $21.91 per barrel, but realized gas prices faced pressure from continued pipeline constraints in the Midland Basin. About 15–20% of Uinta oil was sold to local refineries in Salt Lake City, reducing transport costs, with the balance shipped by rail at higher expense.
Hedging continues to play a major role in managing price risk. Approximately 45% of oil and natural gas volumes are hedged for the third and fourth quarters of 2025, with oil floor prices set at $65.07 per barrel and gas at $3.67 per million British thermal units. The company also uses regional price swaps to offset negative pricing differentials in key markets, supporting revenue stability amid a volatile commodity environment.
The company reduced its estimate for 2025 cash tax payments to approximately $10 million, subject to ongoing evaluation and pending final impact from the One Big Beautiful Bill Act. This shift, attributed to revised depreciation rules and greater deductibility, improves near-term cash flow.
Looking at capital returns, the company paid $22.9 million in dividends. The company paid a quarterly fixed dividend of $0.20 per share, an increase of 11% from the prior year, and maintained its focus on debt reduction until leverage targets are met.
Looking Forward: Guidance and Watch Items
The company left its production guidance unchanged at 200–215 thousand barrels of oil equivalent per day, but raised its oil cut expectation to 53–54% of volumes, above the prior estimate. Capital spending guidance climbed to about $1.375 billion, mainly to incorporate additional non-operated projects. Production is expected to be between 209 and 215 thousand barrels of oil equivalent per day, with capital expenditures forecast at $300–320 million. Depreciation guidance also moved up to $16 per barrel of oil equivalent, reflecting higher oil output.
Management continues to focus on operational efficiency and capital discipline as key themes, stressing that additional debt reduction is the near-term priority. Cost trends—particularly higher lease operating and transportation expenses—remain areas to watch, as do persistent regional gas price discounts and the impact of higher spending on returns. The company’s hedging program and asset quality leave it well positioned, but margin resilience will depend on controlling costs and ongoing price developments.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
